IMF warns Nigeria against restoring petrol subsidy

The International Monetary Fund (IMF) has warned the Federal Government against restoring blanket petrol subsidies, urging it to channel public funds towards vulnerable households struggling with rising fuel and transportation costs.

The warning comes amid growing political pressure for the return of petrol subsidies ahead of the elections, as higher energy prices continue to squeeze household budgets.

The Director of the IMF’s Fiscal Affairs Department, Rodrigo Valdés, gave the warning on Wednesday during the IMF and World Bank Group Annual Meetings in Bangkok, Thailand.

Responding to questions about calls for the restoration of petrol subsidies in Nigeria, Valdés acknowledged that rising fuel prices could create political challenges but said shielding all consumers from global price increases would place a heavy burden on public finances.

He said governments should explain that rising fuel costs reflect global market shocks and that attempting to absorb the impact through blanket subsidies would be expensive.

Valdés urged the government to redirect funds that would otherwise be spent on universal fuel subsidies towards people most affected by rising living costs.

“It’s much better to use some of that money that would be spent in the subsidies channelled towards more vulnerable people,” he said.

The IMF official proposed targeted interventions, including transportation support, as a more effective alternative to subsidising petrol for all consumers regardless of income.

“Gasoline could go up, and perhaps bus fees may be subsidised in a way. That is a much better policy at the end of the day than just a blanket subsidy for everybody,” he said.

The IMF has consistently argued that universal fuel subsidies strain government finances while disproportionately benefiting wealthier households, which generally consume more petroleum products.

The warning comes amid renewed concerns over petrol affordability in Nigeria following increases in international energy prices and their impact on transportation costs and household expenses.

In response to the pressure, the Federal Government recently introduced a 30-day petrol price discount at Nigerian National Petroleum Company Limited retail outlets, with public transport operators identified as priority beneficiaries.

The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, said the arrangement required NNPC Retail to temporarily forgo its profit margin and sell petrol at cost to ease the burden on consumers.

Oyedele maintained that the intervention was temporary and did not represent a return to the petrol subsidy regime.

Beyond the cost to public finances, Valdés warned that keeping fuel prices artificially low during supply disruptions could encourage consumption and worsen pressure on global petroleum supplies.

He said targeted assistance would allow governments to protect vulnerable households without creating the broader fiscal and economic distortions associated with blanket fuel subsidies.